Do Options Require Physical Asset Exchange?
On the trading platform, options are cash-settled. This means the actual physical delivery of assets (currency or commodity) is not required. Instead, at the option’s expiry, cash is credited to your free balance in the amount of the difference between the strike price and the current market value of the asset. If an option has no value on closing the position, no cash is credited to your free balance.
A benefit of trading electronically with the easyMarkets options platform is your real-time profit or loss from the transaction (trade) is calculated for you. Profit and loss can be monitored and trades can be closed before expiry via the open positions’ screen.
We have mentioned when buying an option you pay a premium, the ‘open premium’. While you hold an option, the premium value changes depending on changes in the underlying market.
The premium of a buy Put trade increases as the market falls. Why? Because the Put’s strike rate becomes more attractive relative to the market rate.
The premium of a buy Call trade increases as the market rises. Why? Because the Call’s strike rate becomes more attractive relative to the market rate.
The difference between the ‘premium at open’ and ‘premium now’ is your running profit or loss. Here is an example of the profit/loss of a USD/CAD Call option trade: